Quinn: Delay retirement, charge employees more to fix pensions

Saturday

SPRINGFIELD -- Public employees in Illinois would pay more for less under a sweeping plan to change pension benefits Gov. Pat Quinn proposed on Friday.

SPRINGFIELD -- Public employees in Illinois would pay more for less under a sweeping plan to change pension benefits Gov. Pat Quinn proposed on Friday.

Quinn’s plan would offer active public employees who were hired before Jan. 1, 2011 a choice: Accept less-generous benefits or lose your state health benefits upon retirement. In addition, no raises would count toward pensions if an employee did not select the new benefit structure.

Under the governor’s proposal – released in the form of a statement, not a bill -- public employees would have to pay 3 percentage points more for their pensions and would receive reduced and delayed annual cost-of-living-increases after retirement. Some would not be eligible for full retirement benefits until age 67.

The plan will not affect public workers who are already retired, Quinn said.

The governor was grandiose in announcing his plan, calling it a “bold step.”

“I was put on Earth to get this done,” Quinn told reporters in Chicago, where he made the announcement. “I did not create the problems, but I am here to solve those problems.”

Denounced by unions

A coalition of union groups denounced the plan, calling it an unconstitutional and illegal cut in benefits.

“By appearing to endorse these unfair and unconstitutional cuts, the governor has made the process of finding common ground much more difficult,” said AFL-CIO president Michael Carrigan in a statement. "Forcing public servants to choose between two sharply diminished pension plans is no choice at all. It is a clearly illegal attempt to solve the problem caused by past governors and the legislature solely on the backs of teachers, caregivers and other public workers.”

Carrigan spoke for the We Are One Illinois Coalition, which includes the American Federation of State, County and Municipal Employees, the Illinois Federation of Teachers, the Illinois Education Association, Service Employees International Union and other labor groups.

Senate President John Cullerton, D-Chicago, indicated that the way the proposal was set up is sound, but stopped short of saying it is constitutional. Of the four legislative leaders, Cullerton has been the most vocal about saying that any solution to the state’s $83 billion in unfunded pension obligations needs comply with the state constitution.

The constitution says pension benefits are a contract between state and local governments and public employees, and they “shall not be diminished or impaired.”

“Cullerton is pleased that the governor’s proposal embraces the legal framework that will allow the state to control pension costs in a constitutional way,” said spokeswoman Rikeesha Phelon in a statement.

House Speaker Michael Madigan’s spokesman declined to weigh in on the constitutional question, predict whether the plan could pass or say what modifications would be made it the House.

“Describing the constitutionality isn’t the job of the legislature,” said spokesman Steve Brown. “We’re going to worry about trying to find a majority to pass legislation that will produce some relief on the cost of public employee pensions.”

Up to $85 billion in savings

Quinn estimated that his plan would save $65 billion to $85 billion out of roughly $310 billion in current, future and past-due pension costs and bring the state up to 100 percent funding of its systems by 2042. Current state law calls for the plans to be up to 90 percent funding by 2045.

However, it is unclear whether the governor plans to take the savings in the early years, as a 1995 pension funding plan did, and ramp up payments later. The 1995 plan has hamstrung state government over the last decade by jacking up payments.

“The annual contribution will be calculated and certified each year by the actuaries according to the new funding schedule,” said Quinn spokeswoman Brooke Anderson. “The big savings would be realized over time.”

Action is critical, Quinn said, because the state will face a downgrade in its bond rating if it does not act.

The governor also wants to gradually shift the responsibility for funding teacher and university employee pensions to local school districts and state universities, but it’s unclear how fast he thinks that could happen.

‘Bold plan’

The two Republican legislative leaders praised the plan, except for the cost shift.

“There are some outstanding components,” said Senate Minority Leader Christine Radogno, R-Lemont. “I think this is a bold plan. … we will probably put votes on it.”

House Minority Leader Tom Cross, R-Oswego, warned that shifting costs to school districts and universities will result in a $1 billion property tax increase statewide.

The governor had convened a working group led by budget director Jerry Stermer to make pension recommendations. That group has not yet come to a consensus, but still might, according to the governor’s office.

One working group member, state Sen. Bill Brady, R-Bloomington, criticized the governor for coming out with his plan before the group finished.

“It is disconcerting that Governor Quinn has suddenly abandoned the bipartisan approach and rolled out his own plan,” Brady said in a statement. “It runs completely counter to his original goal.”

Brady, who represents part of Sangamon County, said he supports adjusting the COLAs and increasing employee contributions, but opposes raising the retirement age.

TRS analysis

Teachers’ Retirement System executive director Richard Ingram said TRS has to analyze the proposal to see if it will generate the savings predicted.

A major factor in determining the savings, he said, is how many employees will make the choice Quinn wants them to make. He noted that teacher retirees are different from state employee retirees because they have to pay for their post-retirement health care, while 90 percent of retired state employees do not. TRS is the largest state pension system.

Ingram, who recently wrote a memo urging the repeal of the current pension funding law, praised Quinn’s embrace of a 30-year funding plan, which is standard actuarial practice. But one difficulty faced by the retirement systems is advising their members whether to opt into the new system or to stick with what they’ve got, he added.

The choice would be “a more individualized, where-are-you-in-life … financial decision that would not be one to be made lightly,” Ingram said.

Chris Wetterich can be reached at 788-1523. Staff writer David Thomas contributed to this report.

Quinn’s plan

Quinn released a one-page fact sheet about the proposal, but some details are unclear:

--The retirement age to receive full pension benefits would be increased to 67, but will be phased in over several years. It’s unclear how fast that change will be made. It’s also unclear how or whether the new retirement age would apply to state police officers and others in the alternate pension formula, who can retire at age 50 with 25 years of service or age 55 with 20 years of service.

--Employees would pay 3 percentage points more for their pensions. For example, a state employee who started work before Jan. 1, 2011, and is not in the Social Security system contributes 4 percent of his or her salary today. Under Quinn’s plan, he or she would contribute 7 percent. A non-Social Security state employee’s contribution would go from 8 percent to 11 percent, a university employee’s contribution would go from 8 percent to 11 percent, a teacher’s contribution would go from 9.4 percent to 12.4 percent, a judge’s contribution would go from 11 percent to 14 percent, and a legislator’s contribution would go from 11.5 percent to 14.5 percent.

--Cost-of-living increases would be reduced from 3 percent, compounded annually, to the lesser of 3 percent or half the consumer price index. The new COLAs would not be compounded.

--Employees would not be eligible for cost-of-living increases before age 67 or five years after they retire if they retire before age 67, whichever comes first.

--Quinn’s plan would require automatic funding of the pension systems so that payments cannot be skipped or reduced, as they have been over decades. Current state law requires an ongoing appropriation for the pensions, but a majority of lawmakers can simply vote to skip payments. The new language would be stronger, according to Quinn.

--Quinn’s proposal said retirees who opt in to his plan will receive “a subsidy” for their health care. State employee retirees who have not reached Medicare age currently receive health care coverage with no premiums (they have to pay co-pays) if they have worked 20 years or more. It’s unclear whether health care for those who opt in would continue to be subsidized at that level. The administration did not answer questions about how much those who don’t opt in would have to pay.

--Quinn said retirees who do not opt in would no longer have their raises counted as a part of their pensions. A New York court case where a school district granted “cost-of-living bonuses” that did not count toward its teachers’ pensions is the basis for that change being constitutional.

Chris Wetterich can be reached at (217) 788-1523.

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